by

Chairman Christopher Cox

U.S. Securities and Exchange Commission

Denver, Colorado
May 11, 2007

Thank you, George, for that kind introduction. I particularly appreciate the fact that you kept it mostly positive — I say mostly, because you mentioned that I went to Harvard. Not everyone views that as a recommendation. And that was certainly true for my first employer in Washington. On my very first day working for President Reagan in the White House, I met with the President in the Oval Office. And he said, "I understand you're a Harvard grad. Well, a very good friend of mine is a Harvard graduate. And as a matter of fact, he recently asked me for some advice.

"This fellow had been CEO of a very important company, but then he fell on hard times. He had a serious drinking problem, and it began to affect his work. Eventually, he was asked to leave the firm. Then, the financial and personal trauma from that broke up his marriage, and he lost touch with his family. Things got worse, and he ran into trouble with the law — he got picked up for shoplifting, and spent a brief time in jail.

"But recently he's come around — he's out of jail, he's completely sober, and best of all, he's found a wonderful woman he hopes to marry." And it was on this point, the President said, that the man asked his advice. "He said he hadn't told her anything about his past, because he was worried about what her reaction would be. So he asked, 'What do you think, Mr. President? Should I tell her I went to Harvard?'" Right away, I knew where I stood.

But this morning I stand at the front end of a terrific program. My former colleague Dave Skaggs will be an exceptional lunch speaker. And SEC all-star alums like Stan Sporkin, Jim Doty, and Randy Fons — not to mention Lynn Turner, who did an outstanding job helping to straighten out the pension mess in the City of San Diego — will join current SEC heavyweights including Walter Ricciardi, Marty Dunn, John Walsh, and Don Hoerl.

I'm particularly pleased that this Conference brings together both federal and state securities regulators and that Fred Joseph, the Colorado State Secretary Commissioner, and Joseph McCarthy from NASD are anchoring the program. And of course there's no one better equipped to help us tackle the current challenges in the securities industry than John Olson of Gibson Dunn & Crutcher — whose good judgment includes having had George Curtis as a law partner.

Let me say, on behalf of the Commission and a grateful country, how proud we are of the leadership that George is providing in the Denver Regional Office. George Curtis has an exceptional background not only in the SEC Enforcement area but in litigation involving the Department of Justice, the Public Company Accounting Oversight Board, and several self regulatory organizations. And he brings wonderful experience to the Commission as a manager, having served on Gibson Dunn & Crutcher's Executive Committee and been the Partner-in-Charge of that firm's Denver office.

Even though George worked for awhile in Gibson Dunn's Los Angeles and San Francisco offices, he's most at home right here in the "real" West. As you may know, I also spent much of my professional career in the West, but that was the Far West, in California. And for purists like George, and probably most of you who live here in Colorado, California doesn't quite qualify as the "real" West. There's just too much tofu and tinsel. And I understand the point. Somehow, the idea of throwing another tofu on the grill as we sit around the campfire just doesn't cut it. But here in Colorado, we've got the real West. Wide open spaces, broad skies, rugged individuals, neighbor helping neighbor — the stuff of Western movies and novels.

When I took a literature course in college called "The West in American Literature, "I remember the professor's explanation of why the Eastern reviewers all look down their noses on the genre of the Western. It's because the very existence of the West is an affront to East Coast civilization. The West wouldn't even be populated unless the pioneers had braved the perils of heat and snow, and risked everything — their money, their lives — to forge on in wagon trains to an uncertain destination. They were making a pretty powerful statement about how they felt about the East — if it was worth risking all that, just to get away.

So here we are today, some of us whisked here from Washington not on horseback or wagon train but by United Airlines in a matter of hours. But even though today's West is high tech and urban, it's worth contemplating its dynamic history, and the lessons that this region's experience holds for us in the securities realm.

Just as taming the West in the 19th Century posed formidable challenges but held immense promise that fired the imagination, taming the electronic frontier is the 21st Century's challenge — particularly when it comes to our securities markets and the world's investors in the age of the Internet. These same stakeholders today face a series of frontiers that are worldwide in scope and marked by the speed and access to information that are the distinguishing characteristics of that medium.

In confronting the challenges posed by these frontiers, we would do well to draw from our prior experience, developed over centuries, of confronting challenges posed by vast new lands and the rich cultures and resources that marked them. As the author William Least Heat-Moon put it in his book, Blue Highways, "The true West differs from the East in one great, pervasive, influential, and awesome way: space. The vast openness changes the roads, towns, houses, farms, crops, machinery, politics, economics, and, naturally, ways of thinking."

You have only to travel across Wyoming, or North and South Dakota, to understand what he means. The very space that constitutes the "real" West has the paradoxical effect of emphasizing the individual as well as the community. That great Montana author, Ivan Doig, who grew up on a ranch there, describes it as a "Western state of mind" — it values the open space, the Western sky, the individual spirit and the community.

These last two values figure prominently in the approach undertaken by the SEC in fulfilling its role as the investor's advocate — particularly in the age of the Internet. The SEC is charged with the protection of investors in the changing conditions occasioned by the Internet. In fulfilling its mission, the Commission must also be willing to change its way of thinking as it confronts an electronic reality. The focus of the Commission is on the protection of the individual investors as well as the community of investors who operate in the broader context of the market. And that focus is on a new open space — cyberspace.

In the view of the University of Colorado's Center for the West, our experience with the West and the frontier apply, by analogy, to the dynamic expansion — perhaps "explosion" would be the better word — of the Internet and to the effect of the Worldwide Web on our society and economy. The Internet, the globalization of the securities markets and the constant morphing of electronic media mirror the challenges we associate with the western frontier: The very space of the West required a rethinking of the concept of property rights, particularly as they applied to water, the life blood of much of the West.

The Internet today challenges the Commission's ability to keep up with the dynamic growth of the securities markets. Thanks to the Internet, there is now instant, direct, and faceless communication between market participants — good and bad — and investors. And that, in turn, gives rises to a newfound ease of inflating or depressing a stock's market price through information instantaneously communicated. The Internet today both challenges and facilitates the twin goals of transparency and full sharing of accurate information with investors.

In achieving those goals the Commission must tailor its regulations and enforcement efforts to facilitate their accomplishment while providing for the effective and efficient functioning of the markets on a global scale. In the expansion westward, the advent of the railroad involved complex issues of economic as well as legal power. With the securities markets now operating on a global basis, the Commission and its companion regulatory agencies in other countries must consider the economic effects of regulation, the proper measure of that regulation, and the appropriate reporting, accounting and auditing standards that are to be observed by market participants.

Gertrude Stein — also a native of the West, albeit west Oakland, California — tried to capture America in a single sentence: "Conceive of space that is filled with moving." That observation captures both the spirit of the West and the nature of our electronic markets. Market participants can now transmit information at the push of a button. Regulators, such as the SEC, must consider how best to harness this space filled with moving data in such a fashion as to enable market participants to receive accurate, material information and analyze it across industries and markets.

Just as in California, Colorado has its own colorful history of the search for gold, with as many as 100,000 wealth seekers — known as "59ers" — rushing to the Pike's Peak region from 1859 to 1861. In later years, it became popular to register gold prospects with the SEC. Anyone who had a plot of land and was sure there was gold there organized a company that acquired the plot, and then tried to raise public funds to find the gold. In most cases, of course, they didn't find the gold.

One of my predecessors as Chairman, Manny Cohen, had a great story about one particularly gold prospecting company that was attempting to register with the SEC. We had one instance where the Commission staff was having some trouble with the people who were preparing the registration documents. And these men insisted on seeing the head of the Division. So a meeting was arranged. And while they were talking about it, one of them received a telegram. The telegram said: "Withdraw the registration statement. We've just discovered gold."

The same rich texture and complexity that marked the development of the West now mark the development of the securities markets in the age of the Internet. The challenge to the SEC is to fulfill our mission when the easy availability of information, and the concurrent growth of ways to manipulate that information, place us on an uncharted and changing frontier that holds the prospect of great benefit — but also the risk of great harm — for both investors and markets. In the face of rapid change, our mission remains the same: the protection of investors and the markets that serve them.

At today's conference, you'll hear discussions of several new challenges that confront both the markets and the Commission. On the positive side, you'll learn of the Commission's initiatives to harness the power of the Internet to provide real-time information to investors. The continued development of XBRL tagging will allow investors, analysts and the markets to quickly access the information they need most and to compare that information across industries and markets. The Internet's instant access to information can greatly facilitate transparency.

However, as shown by our recent mobilization to catch the purveyors of Internet fraud, the Web carries with it the ability to practice age-old fraud with particularly new spins to them. One of the most striking instances of such frauds is the hijacking of Internet accounts to accomplish a pump and dump scheme. Under this approach, the fraudster gains access to an investor's Internet account, sells the holdings in that account, and uses the proceeds to buy shares in a different, often thinly capitalized stock — a stock in which the fraudster holds a significant position. By pumping that stock up through the hijacked account of an unsuspecting investor, the fraudster then can increase the market value of his or her holdings. Those holdings are then sold — to the fraudster's benefit, and to the detriment of the unsuspecting investor.

The challenges confronting investors, the markets and the Commission go well beyond the simple fact that the Internet exists. The globalization of the markets, occasioned in part by the Internet, carries with it many challenges. And so we're working with our foreign regulatory counterparts to cooperate in enforcement, regulation, and integration of our markets. That cooperation is more important now than ever before.

With the advent of the Internet, securities fraud often involves offshore individuals and entities. Only with the active assistance of our colleagues abroad will we be able to fully confront the challenge of enforcement in a global environment. The same is true of our concern with the systemic risk posed by over 9,000 hedge funds in both our national and the world's economy. We want to maintain the advantages of market liquidity while preserving the safety and security of world markets.

In considering these several issues, it's important to remember that the SEC is, first and foremost, a law enforcement agency. We inspect, examine, investigate, and charge people with offenses. In doing so we are the investor's advocate. By patrolling the markets for securities swindlers and scam artists, we fulfill our government's responsibility to maintain a civil society under the rule of law.

While the Internet has brought the world closer together than ever before, and is improving our lives in countless ways, it also has a dark side. It enables several forms of securities fraud that have been with us in the markets for many, many years and makes them both easier to commit, and harder to detect.

While the examples are many, you can see what I mean when you consider the dangers of insider trading — a particularly urgent topic in light of recent events in this region. There is, perhaps, no other abuse that is so distinctly violative of duties owed both to shareholders and the market. And technology is enabling market manipulation through the hijacking of investment accounts. It's turbocharging the age-old but very much present pump and dump schemes — including blast faxes, Internet promotion schemes and the like. Prime bank schemes such as the guaranteed-rate-of-return CDs held in unnamed foreign banks that promise interest rates too good to be true — and which are. Corporate accounting fraud involving critical issues in the business of the company — is often more difficult to uncover in this era of supposed electronic transparency than ever before, because fraudsters can now leave no paper trail.

So what are we doing in response to these modern threats to investors and the markets? First, we're working to protect investors through the aggressive enforcement of the securities laws. This is a national, and indeed international, effort — in which this region and the Denver office play a significant and continuing role. We're working to improve the way markets work, and to ensure that investors know what's going on inside the black box.

On a policy level we're closely monitoring the credit extended by securities firms to hedge funds and the collateral protection obtained as part of that credit. We've engaged in reviews with other banking supervisors of the credit extensions to hedge funds by a wide range of financial institutions, both in the U.S. and abroad. And we're particularly interested in the level of collateral protection now available to lenders.

We're aggressively attacking Internet fraud in all its manifestations. We're alerting seniors to the frauds that target older Americans. When it comes to determining our law enforcement priorities, I can think of no more valuable and appropriate target than those who prey upon America's seniors. Surely there is a special place in Hell for those who would rob the elderly of their life savings.

I suspect many in our audience this morning could voice instances where their parents have been subjected to sales tactics designed to pressure them into investments that are unsuitable — or simply frauds designed to take their money. Examples range from the "special" offer of variable annuities — with heavy penalties for any withdrawal for a period of some several years — to prime rate frauds designed to take the investors money now with no hope of eventual return.

Older Americans are often targeted with "discount" offers that accompany pump and dump schemes, and they're uniquely susceptible to the blandishments of a "personal friend" who can take over discretionary control of their investments. More than 10,000 Americans are turning 60 every day. That trend will continue for the next 20 years. That's the population of one mid-sized town after another turning 60 every 24 hours, without interruption, for an entire generation.

The issue of fraud on our senior citizens brings me back to the analogy to the West and the frontier. In order to survive the frontier, the settler relied not just on his or her individual instincts. Of necessity, the settlers formed and relied on communities that protected them and their families, and adapted to the particular challenges of their times.

In addition to pursuing the criminals who prey on seniors, our goal is to alert the communities of senior citizens, their families and care-givers, to the defenses that are available against these frauds. First and foremost, we urge seniors not to make hasty decisions. We counsel them to consult with trusted family and friends, preferably — family and friends with some background in investments. We encourage them to ask questions, get advice, not to be afraid to hang up, and to remember the no-call lists.

We and other federal and state agencies are redoubling our efforts to protect our senior citizens. This region is particularly active in both enforcement and education efforts in this area. We applaud your leadership, and we need your continued assistance. Without your expertise and concern we can't combat either this fraud or the many others that threaten all investors and the markets in which they place their funds. There are really two basic ingredients in keeping our markets free and fair: the rule of law, and a constant concern by every market particularly with the integrity of their own dealings.

One of Colorado's claims to fame is our unofficial national anthem, "America the Beautiful". It was written by Katherine Bates — the 19th Century composer, not the Academy Award winning actress — while she was teaching at Colorado College in 1893. We all know the first verse, but the rest of the lyrics are worth knowing as well. She concluded the second stanza with the phrase: "Confirm thy soul in self-control, thy liberty in law" — which is good counsel for the securities industry as well, because it underscores the need for both individual discipline and the protection of the law. But maybe you'd prefer a more plain-spoken Westerner. Possibly with securities law enforcement in mind, Wyatt Earp, noted American gambler, gunfighter and lawman, said: "Fast is fine, but accuracy is everything."

The job of the regulator is to hold those who try to play fast and loose with the Internet, accountable for accuracy and honesty in their dealings. We won't be blinded by the speed of today's electronic communications, and the several frontiers it opens, from the central goal of providing accurate, timely information to investors. Denver is the perfect place to confront the challenge of timeless values and modern technology, because it's been an engine for high-tech growth.

In fact, the Rocky Mountain states, from Bozeman to Colorado Springs, to Laramie to Boise, are growing a high-tech base that's competitive nationally and internationally. Venture funds are springing up and financing development stage companies. Those companies need investment and access to the capital markets. We want to encourage that access. But in order for us to be successful, the markets must be viewed as fair and transparent, and so must those companies. Like Wyatt Earp, we'll aim to shoot straight to try to make those markets just what you'd most want as an investor, as a company, or as a venture capitalist.

So I wish you the best for a wonderful conference, and thank you for your devotion of so much time and energy and personal commitment to the protection of our markets in these exciting and dynamic times — and not just today, but every day. Your vocation is a noble one, and all of us at the SEC are proud to be your partners.